11:02 AM Downtown Chicago apartment rents hit record high, Appraisal Research says - Trend Of The Week - Crain s Chicago Business | ||||
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Downtown apartment rents rose to a new high in the first quarter, at least temporarily easing worries that a surge in development will flood the market with too many apartments. The average effective rent at top-tier, or Class A, buildings in downtown Chicago rose to $2.85 per square foot in the quarter, up 5.6 percent from a year earlier, according to a report from Appraisal Research Counselors. But the downtown occupancy rate slipped to 94.3 percent from 95.1 percent in first-quarter 2014. Downtown landlords will face a test this year and next as developers complete more than 7,600 apartments in the central business district. Yet demand is keeping up with supply so far: Absorption, or the change in the number of rented apartments from the fourth quarter, totaled a record 1,139 units in the first quarter, according to Appraisal Research. “There's more certainty about the strength of the rental market,” said Ron DeVries, vice president at the Chicago-based consulting firm. Effective rents at less expensive Class B buildings rose to $2.47 per square foot in the first quarter, up 5.1 percent from a year earlier, according to Appraisal Research. Effective rents account for the impact of concessions like free rent. Class B occupancies, meanwhile, rose to 92.7 percent in the first quarter, versus 92.6 percent a year earlier. Downtown landlords have been on a roll for nearly six years, first gaining from the collapse of the condominium market, which turned many would-be buyers into renters. More recently, the improving job market has boosted demand for housing among well-paid technology workers and white-collar professionals in their 20s and 30s, many who prefer the flexibility of renting over the responsibility of owning. As a result, the cost of living in a downtown apartment has soared. The median Class A downtown rent has risen 37 percent since bottoming out in 2009, meaning a high-end apartment that rented for $2,000 a month back then now costs $2,740. “It's a good time to be an owner,” DeVries said. “It's a good time to be a renter if you have a lot of money and you want a nice place to live.” MORE OPTIONS Renters may be paying more than they used to, but they also have a lot more choices. Developers will complete 2,932 apartments downtown this year and 4,700 in 2016, according to Appraisal Research. At least this year, DeVries says, demand will be strong enough to soak up the extra supply: He expects absorption to total 2,400 units in 2015, about 500 units less than what will be added but enough to keep the market in equilibrium. He forecasts a strong 5 percent average rent increase over the next 12 months. Some new apartment developments are filling up quickly. Amli Lofts, a 398-unit project completed last August in the South Loop, is already 86 percent leased, about six months ahead of schedule, said Greg Mutz, chairman and CEO of Amli Residential, the project's Chicago-based developer. Rents in the development at 850 S. Clark St. are about 7 percent higher than originally projected. “It's off the charts,” Mutz said. “It really is quite astounding.” The strong job market has fueled demand for downtown housing, and many new residents are flocking to apartments over condominiums because condo construction has been slow to pick up, DeVries said. Residents who might prefer to buy a new condo can't find what they are looking for and are renting instead, he said. Yet with developers on track to deliver a record 4,700 apartments in 2016, the question is how much longer the good times will last. DeVries forecasts absorption of 2,400 units next year, meaning new renters will soak up only a little more than half the new supply. Mutz, meanwhile, is bracing for a surge in new apartment construction because of due to affordable-housing regulations recently passed by the City Council that are expected to increase development costs. The new regulations, which apply to residential projects approved by the city after Oct. 12, will encourage many developers to push forward with projects earlier than they previously planned, he said. “If you're not worried (about rising supply), you're a fool,” he said. Related StoriesDowntown hotels wrapping up another record year 
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